The way ahead? - Vodafone

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Financial risk management
The Group’s treasury function provides a centralised service to the Group for funding, foreign exchange, interest rate management and counterparty
risk management.
Treasury operations are conducted within a framework of policies and guidelines authorised and reviewed by the Board, most recently on 27 March
2012. A treasury risk committee comprising of the Group’s Chief Financial Officer, Group General Counsel and Company Secretary, Group Treasury
Director and Director of Financial Reporting meets three times a year to review treasury activities and its members receive management information
relating to treasury activities on a quarterly basis. The Group’s accounting function, which does not report to the Group Treasury Director, provides
regular update reports of treasury activity to the Board. The Group’s internal auditor reviews the internal control environment regularly.
The Group uses a number of derivative instruments for currency and interest rate risk management purposes only that are transacted by specialist
treasury personnel. The Group mitigates banking sector credit risk by the use of collateral support agreements.
Credit risk
The Group considers its exposure to credit risk at 31 March to be as follows:
2013 2012
£m £m
Bank deposits 1,396 2,762
Repurchase agreements 2,550 600
Cash held in restricted deposits 404 333
UK government bonds 1,076 900
Money market fund investments 3,494 3,190
Derivative financial instruments 3,032 2,959
Other investments – debt and bonds 3,427 160
Trade receivables 4,176 4,005
Other receivables 1,877 3,219
Short term securitised investments 826 586
22,258 18,714
The Group invested in UK index linked government bonds on the basis that they generated a floating rate return in excess of £ LIBOR and are
amongst the most creditworthy of investments available.
The Group has a managed investment fund. This fund holds fixed income sterling securities and the average credit quality is high double A.
Money market investments are in accordance with established internal treasury policies which dictate that an investment’s long-term credit rating
is no lower than mid BBB. Additionally, the Group invests in AAA unsecured money market mutual funds where the investment is limited to 7.5%
of each fund.
The Group has investments in repurchase agreements which are fully collateralised investments. The collateral is sovereign and supranational debt
of major EU countries with at least one AAA rating denominated in euros, sterling and US dollars and can be readily converted to cash. In the event
of any default, ownership of the collateral would revert to the Group. Detailed below is the value of the collateral held by the Group at 31 March 2013.
2013 2012
£m £m
Sovereign 2,081 575
Supranational 469 25
2,550 600
In respect of financial instruments used by the Group’s treasury function, the aggregate credit risk the Group may have with one counterparty
is limited by (i) reference to the long-term credit ratings assigned for that counterparty by Moody’s, Fitch Ratings and Standard & Poor’s, (ii) that
counterparty’s five year credit default swap (‘CDS’) spread, and (iii) the sovereign credit rating of that counterparty’s principal operating jurisdiction.
Furthermore, collateral support agreements were introduced from the fourth quarter of 2008. Under collateral support agreements the
Group’s exposure to a counterparty with whom a collateral support agreement is in place is reduced to the extent that the counterparty must post
cash collateral when there is value due to the Group under outstanding derivative contracts that exceeds a contractually agreed threshold amount.
When value is due to the counterparty the Group is required to post collateral on identical terms. Such cash collateral is adjusted daily as necessary.
In the event of any default ownership of the cash collateral would revert to the respective holder at that point. Detailed below is the value of the cash
collateral, which is reported within short-term borrowings, held by the Group at 31 March 2013:
2013 2012
£m £m
Cash collateral 1,151 980
145
Vodafone Group Plc
Annual Report 2013